such as unemployment, illness or other financial difficulties. If you had a
problem that's been corrected and your payments have been on time for a year or
more, your credit may be considered satisfactory.
If you are currently in excess
there are four ways to control it:
- If your Credit is not in terrible shape, you can
reduce your other expenses, even if it means making hard choices or changing
your lifestyle to fit your income. Consider selling a second car, taking
equity out of your home, applying for a non secured signature loan,
obtaining a loan from a relative, selling your home and paying off your
debts with the proceeds and then renting, cashing out your 401K/retirement
benefits or selling family heirlooms, jewelry, etc.
- If your credit is already damaged or one of the above
isn't an option, go through Consumer Credit Counseling Services (CCCS).
Check your yellow pages for the local number. CCCS may be able to help you
pay off your debts as if you were in a Chapter 13 bankruptcy, but you don't
actually file for bankruptcy.
- If CCCS won't take you, you may want to consider
bankruptcy. Claiming Chapter 13 bankruptcy takes longer than a Chapter 7,
but your credit will end up in a little better standing. Chapter 13
bankruptcy gives you up to 5 years to pay off your debts. The disadvantage
is that you're in bankruptcy for up to 5 years plus your credit report shows
your bankruptcy for 7 more years after you have finished paying off your
debts.
- If you are so far in debt that you can never repay it,
then the best solution may be a Chapter 7 bankruptcy. A Chapter 7 bankruptcy
is the least desirable from a credit standpoint, but you are typically out
of bankruptcy in 6 months and you don't have to repay any debt. The
disadvantage is that this shows on your credit report for 10 years from the
date of filing your bankruptcy. Creditors are starting to tighten their
credit requirements, and you may have a tough time getting future financing.
If your debts are under control now, but want to improve
your bad credit history, the most important factor is to make your monthly
payments on time. Use pre-addressed envelopes enclosed with your statements to
mail your payments and call the company if you don't receive your usual
statement. Also send your payment as early as possible if you carry a balance.
Most companies calculate interest on a daily basis, so the sooner they receive
your payment, the less interest you'll pay.
Don't procrastinate. It's the day your payment is
received that counts, not the postmark date. Give the post office sufficient
time (five business days is a good guideline) to deliver your mail. Late
payments may mean late fees, higher interest, and/or a negative mark on your
credit report.
Never send cash. Open a checking account if you don't
have one, or spring for a money order and keep your receipt. Finally do not
forget to tell your creditors your new address when you move.
If you are worried about making payments, make a list of
your debts and when the payments are due. Contact your lenders immediately if
you think you will have trouble meeting the monthly payments to arrange a
payment schedule.
Taking money from your retirement account or tapping the
cash value of your life insurance policy to pay bills or living expenses may
have serious implications you haven't considered, so try to get advice from an
expert before you take any major financial actions.
Credit cards can be invaluable in a crisis, since they
allow you to charge items and pay them off over time. But they can also be
dangerous if you aren't careful and charge more than you can afford. If you do
use credit cards, choose those with the lowest interest rates and pay them back
as soon as you can to cut your costs.